What is the deal with bitcoin?

A proven currency, or a predictable flop? Whatever side you're on, Bitcoin has taken the financial world by surprise in 2017. And, as Kate King reports, warnings about the cyrptocurrency are increasing.
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The value of bitcoin, an international cryptocurrency, has soared in recent months, creating millionaires and piquing interest in potential users.(Photo: Getty Images)

The value of bitcoin, an international cryptocurrency, has soared in recent months, creating millionaires and piquing interest in potential users.

The unconventional form of payment has even come to Shreveport, with one of Louisiana’s nine bitcoin ATMs at a Chevron gas station on Bert Kouns Industrial Loop.

But while there are a number of positive uses for bitcoin, a dark side to the currency has unfortunately emerged as well.

“It’s very easy to get. If it’s easy for you and I to get, how easy is it for the criminal to be involved?” said David Ellis, a Shreveport-based analyst with the Federal Bureau of Investigation. “That’s our side.”

Bitcoin is a cryptocurrency — crypto means hidden or secret — traded from person-to-person, rather than through banks.

A bitcoin ATM at Ace Check Cashing in Detroit(Photo: JC Reindl)

In 2008, Ellis said, a person named Satoshi Nakamoto wrote a nine-page white paper that proposed the idea of a virtual currency that would be user-friendly, decentralized, fast and available on the internet with low transaction fees.

“There’s not a central bank or issuer," said Harold Christensen, a professor of economics at Centenary College. "It doesn’t have that stamp of legal tender on it that gives it that credence we would look for."

The digital currency is not tangible — it’s not a coin, a piece of paper or certificate — but it is extremely easy to acquire.

Users can download a bitcoin wallet on their phones from Google Play or the Apple store, then either go to a bitcoin digital exchange or bitcoin ATM to convert money almost instantly.

“It’s easily converted to U.S. dollars, and it can be spent for many, many things,” Ellis said. “The key reason it’s really taken off is just investments. A lot of millionaires are being made because it’s grown 1,500 percent in the last 12 months.”

The value of bitcoin, an international cryptocurrency, has soared in recent months, creating millionaires and piquing interest in potential users.(Photo: Getty Images)

Worth less than $1,000 just a little over a year ago, one bitcoin was traded for about $14,000 as of Friday.

Despite the market’s inherent unpredictability, many people are becoming more comfortable with the risks associated with investing in bitcoin, Christensen said.

“I think what you’ve seen is a significant increase in demand,” Christensen said. “Demand is going to drive the price up, the uncertainty drives the price up, but then when people panic, the price goes back down. It’s almost like mood swings.”

The value of bitcoin, an international cryptocurrency, has soared in recent months, creating millionaires and piquing interest in potential users.(Photo: Getty Images)

Bolstering the currency’s power is the fact that more and more different kinds of vendors are accepting bitcoin as payment.

“You can pay your DISH network bill with it, some Subways take it, Overstock, Newegg — there’s a lot of credible entities that use it,” Ellis said. “USAA, a major insurance company, is now using it as an investment strategy.”

There is nothing illegal about the currency itself, but because it is anonymous, isn’t taxed and has no real oversight, it has become used by some for criminal purposes such as sex trafficking, Ellis said.

Bitcoin was also the requested form of payment by hackers who attacked more than 300,000 computers in 150 countries last year.

“It was basically a network attack where they shut it down and said, ‘We want $200-300 in bitcoin to get your network back,’” Ellis said.

Investing in bitcoin can also be risky for users because of the lack of protections associated with its decentralization.

“Who do you contact if somebody hacks your phone and takes 10,000 bitcoin; who do you tell?” Ellis asked. “There’s nobody to subpoena, no customer service desk, no 800 number. If we have someone walk in and say, ‘Hey, someone stole $100,000 in bitcoin from my phone,’ we can’t do anything.”

The lack of oversight is somewhat being addressed, with the IRS recently reaching out to Coinbase, the biggest exchange in the world, seeking information on bitcoin users.

“They, through research, realized that through 2013-2015, there were about 14,000 users that had moved $20,000 or more, but they didn’t see that reflected in tax returns,” Ellis said. “So they sued Coinbase and said, ‘We want personal information on these people.’”

Coinbase resisted, but lost — a judge ordered the exchange to turn over the users’ information this past November.

“We are doing something about it now, and they said before nobody was — ‘It’s just the Wild West,’” Ellis said. “It still is in a lot of ways, but you’re seeing now the IRS and the SEC getting involved, the FBI getting involved.”

Though there is a “huge amount of downside risk” when one invests in a cryptocurrency, Christensen said, the willingness of others to accept a currency is what gives it its value.

“As long as there is a subset of the market that is prepared to accept bitcoins, then it should work.”

What is Bitcoin?

Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins are produced by people running computers all over the world, using software that solves mathematical problems.

Who created it?

An unknown person or group using the name Satoshi Nakamoto proposed bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.